Debon Securities: Implementation of Debt-to-Equity Policy, Positive Outlook for Food and Beverage Sector Trending Upwards

Debon Securities issued a research report stating that as the debt-for-equity policy is implemented, the trend of the food and beverage sector is expected to rise. With frequent positive policy developments, a turning point in fundamentals is expected. Last week, the market gradually improved its expectations for domestic demand, with the liquor sector as a core sector expected to benefit. In the short term, the beer sector's performance is under pressure, but the overall upgrade trend remains unchanged. Meanwhile, downstream industries such as food, catering, seasonings, snacks, health products, cosmetics, etc., driven by the post-epidemic recovery situation, are leading to a resurgence in demand for upstream additives. In addition, dairy product consumption scenarios continue to recover, with the long-term trends of high-end and diversification unchanged, and optimistic about overall volume growth in the health food and beverage sector. Debon Securities' main points of view are as follows: Liquor: Focus on the sector's recovery opportunities under improved domestic demand expectations. Last week, the liquor sector rose by 6.85%, with the market gradually improving its expectations for domestic demand, and the liquor sector as a core sector is expected to benefit. We believe that the current situation is still at the bottom of the fundamentals range. The slowdown in third-quarter revenue of listed companies is conducive to channel inventory digestion, and the previous intensive policies will still take time to transmit. We are optimistic about future upside potential. For the liquor sector, we recommend focusing on industry leaders such as Kweichow Moutai, Wuliangye Yibin, Luzhou Laojiao, Shanxi Xinghuacun Fen Wine Factory, Anhui Gujing Distillery, Anhui Yingjia Distillery, etc., and flexible targets such as Hebei Hengshui Laobaigan Liquor, Beijing Shunxin Agriculture, Jiugui Liquor. Beer: Short-term performance under pressure, but the upgrade trend remains unchanged. In September 2024, China's beer output reached 2.904 million kiloliters, a year-on-year increase of 1.4%, and a cumulative output increase of -1.5% from January to September. Looking at the third-quarter reports of beer companies, sales volumes of Tsingtao Beer/Heavy Beer/ Beijing Yanjing Brewery in Q3 2024 decreased by -5.1%/-5.6%/+0.2% year-on-year, and ton prices decreased by -0.2%/-2.4%/+0.03% year-on-year. Overall, performance is under pressure due to weak demand recovery and weather effects, but for the whole year, it is expected that high-grade major single products of major beer companies will help maintain stable price levels. With the introduction of stimulus consumption policies, end-user demand is expected to improve, and we believe that the recovery of dining and other on-site consumption scenarios will drive the upgrading of the beer structure. Currently, the valuation level of leading companies is relatively low, and it is recommended to pay attention to more stable and high-quality leaders and reform-powered targets such as Tsingtao Brewery, Beijing Yanjing Brewery. Seasonings: Reform continues, focus on improvement. The overall performance of seasonings in 2023 is under pressure, as terminal demand recovery is slow and demand structure changes. Cost-effective products are becoming the mainstream demand, and fragmented channels are gaining market share. To adapt to the changing environment, leading companies are undergoing reforms from different perspectives: a) Foshan Haitian Flavouring and Food is accelerating reforms in products, channels, supply chains, internal management, etc., and is expected to improve its operational performance in 2024 as it enters the "three-five" plan; b) Jonjee Hi-Tech Industrial And Commercial Holding has significantly improved internal management, with senior executives from China Resources joining, streamlining and restructuring business processes, optimizing supply chains and performance management, and accelerating the market-oriented management reform of the company; c) Qianhe Condiment And Food is focusing on the precise positioning of the zero-additive segment, benefiting from the expansion of the segment; d) Sichuan Teway Food Group acquired Suicui Food, complementing the online small B channels, expanding the small B product matrix, and opening up a second growth curve. Since the beginning of the year, the trend of terminal demand recovery has continued; looking to the whole year, the low base dividend is expected to be released, and the revenue side of seasonings may improve. It is recommended to focus on Jonjee Hi-Tech Industrial And Commercial Holding and Foshan Haitian Flavoring and Food with improvement logic. Dairy Products: Continued recovery of consumption scenarios, with the long-term trend of high-end and diversification unchanged. In 2023, the dairy industry benefited from the decline in milk prices, with profit elasticity higher than income elasticity; as consumer confidence gradually recovers and national health awareness deepens, the long-term trend of high-end and diversification remains unchanged. Looking at new categories: (1) The cheese market continues to grow, with a rich variety of snack cheese categories and increasing penetration in meal pairing cheese, while the consumption scenario gradually recovers, looking long-term for improved industry ecological margins. (2) In the post-epidemic era, the public's demand for upgraded nutrition is highlighted, with low-temperature dairy products' concept of fresh nutrition being accepted, while penetration increases, competition becomes more varied, and there is a great development space. It is recommended to focus on Inner Mongolia Yili Industrial Group and MENGNIU DAIRY. Catering Supply Chain: Promotion fee policies are implemented, with significant improvements in capital and policy aspects. Starting in the second half of 2023, catering supply chain targets have gradually come under pressure, mainly due to relatively weak demand for terminal stores under the trend of "value for money" consumption. Looking at the third-quarter reports, the overall performance of the sector is under pressure. From a valuation perspective, the valuation levels of most companies are already relatively low, with sufficient safety margins. Therefore, with the support of positive policies, the overall terminal demand for the sector is expected to improve season by season, and it is recommended to focus on relatively stable leading companies and downstream demand-improved performance elastic targets such as Anjoy Foods Group, Ligao Foods Co., Ltd, Shanghai Bolex Food Tech.Nology, Zhengzhou Qianweiyangchu Food Co., Ltd, etc.Leisure snacks: Q3 sector performance further differentiated, focusing on Q4 stocking and high potential targets. Looking back at Q3 of 2024, the leisure snack sector's prosperity recovered slightly compared to after experiencing the high prosperity of Q1 and the traditional sales off-season impact of Q2. However, due to changes in the sector's channels, there is a further trend of differentiation in the performance of various targets within the sector. The top-performing enterprises actively adapt to channel changes, focus on creating major products around "quality-price ratio," continuously improve market share through product and channel improvements, and reduce costs and increase efficiency in the layout of upstream and downstream to ensure a reasonable profit margin level. Targets with poor performance are also actively seeking change and seeking to reverse their predicament. Therefore, it is recommended to pay attention to: 1) dividend continuation targets such as YouYou Foods, Three Squirrels Inc., Yanker Shop Food, Jinzai Food Group, and Ganyuan Foods; 2) targets with potential for turnaround such as Chacha Food and Bestore Co.,Ltd. Food additives: Demand gradually warming, development trend is positive. The recovery in downstream industries such as food, catering, health products, cosmetics, etc., driven by post-epidemic recovery, is boosting the demand for additives in the upstream, especially health products witnessing an explosion in demand under the trend of health consciousness. The overall volume of the health food additive industry is expected to increase. It is recommended to pay attention to the recovery of additive demand related to beverages, such as dietary fiber, sugar substitutes, prebiotics, probiotics, etc.; and also to pay attention to health supplement additives such as lutein, prebiotics, dietary fiber, etc. Recommended targets include Shandong Bailong Chuangyuan Bio-Tech and Chenguang Biotech Group. Investment recommendations: Liquor sector: Recommended companies include Kweichow Moutai, Wuliangye Yibin, Luzhou Laojiao, Shanxi Xinghuacun Fen Wine Factory, Hebei Hengshui Laobaigan Liquor, Anhui Yingjia Distillery, Anhui Gujing Distillery, among others. Beer sector: Recommended companies include Tsingtao Brewery, Chongqing Brewery, Beijing Yanjing Brewery, and recommend paying attention to CHINA RES BEER. Soft drink sector: Recommended to focus on Eastroc Beverage and NONGFU SPRING. Seasoning sector: Recommended to focus on Jonjee Hi-Tech Industrial And Commercial Holding and Foshan Haitian Flavouring and Food. Dairy sector: Recommended to pay attention to Inner Mongolia Yili Industrial Group and MENGNIU DAIRY. Catering supply chain sector: Currently, most companies have valuations at historically low levels, with sufficient safety margins. With policies promoting terminal consumption, it is recommended to pay attention to leading companies with stronger performance resilience and elastic targets with expected demand recovery, such as Anjoy Foods Group, Ligao Foods Co., Ltd, Zhengzhou Qianweiyangchu Food Co., Ltd, Shanghai Bolex Food Technology. Leisure snack sector: Currently, it is advisable to focus on dividend continuation targets such as YouYou Foods, Yanker Shop Food, Jinzai Food Group, and Ganyuan Foods, as well as turnaround potential targets such as Three Squirrels Inc., Chacha Food. Food additive sector: Recommended to focus on Shandong Bailong Chuangyuan Bio-Tech and Chenguang Biotech Group. Market review: Sector index performance: Last week, the food and beverage sector outperformed the Shanghai and Shenzhen 300 Index by 2.78%. From November 4th to November 8th, in the last 5 trading days, the Shanghai and Shenzhen 300 rose by 6.57%, while the food and beverage sector rose by 9.35%, ranking 6th in the Shenwan (2021) first-level industry.